What BFCSA Does...

BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide. Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years. For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams. She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.

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Denise Brailey

Led by award-winning consumer advocate Denise Brailey, BFCSA (Inc) are a group of people who are concerned about the appalling growth of Loan Fraud around the world. BFCSA (Inc) is a not for profit organisation in the spirit of global community concern and justice.

Australian housing a Ponzi scheme and the housing price bubble will burst: Academic

Larry Schlesinger | 6 February 2012

The only thing that prevented Australian house prices from crashing during the 2008 GFC was the first-home owners’ boost, says Deakin University’s Philip Soos, who believes the sector is now operating like a Ponzi scheme. Soos, a researcher in Deakin University’s School of International and Political Studies, believes the Australia’s residential property market has resembled the Ponzi stage of financing for the last 11 years.

The Ponzi finance stage is the third and final stage of US sub-prime mortgage theorist and economist Hyman Minsky’s “state capitalist economies cyclically generated crises”. In the first hedge finance stage “income flows from an asset is sufficient to pay down both principal and interest on the debt financing asset purchases. Prices are based upon fundamentals”. In the second speculative finance stage “income flows cover only interest, not principal, requiring debt to be continually rolled over. Asset owners may experience financial stress, but it is not widespread, and fundamentals are in kept largely in check”. During the Ponzi finance stage “income flows cover neither principal nor interest charges. Owners are completely reliant on escalating sale prices (capital gains) to make a profit and meet the cost of the debt. Prices are completely delinked from fundamentals at this stage, resulting in the dreaded bubble.”

“The market would have collapsed during the GFC in 2008 were it not for another first-home owners’ boost re-inflating asset prices to a new, higher peak,” Soos says in an article for academic commentary site The Conversation. “Two types of return tempt house buyers: owning a property valued by the market at a higher price than it was purchased for (capital gain), and increases in the rental income (yield). Property owners hope that they will make a substantial capital gain when they sell, and that rental income can overtake costs over the long run.

“Data from the ATO tells an interesting story. On aggregate, net real rental income has resulted in continuing losses starting at $966 million in 2000, and peaking at $8.8 billion in 2008. Rental income has not exceeded interest costs since 2000, let alone met the costs of maintenance, rates, agent fees and property tax. “No rational investor knowingly purchases an asset that yields a negative return. Investors are sacrificing cash flow to build assets and realise eventual capital gain,” he says.

According to Soos, the tipping point for the mark will come when “the household sector is so overloaded with debt there exist no more ‘greater fools’ willing to commit to a lifetime of debt serfdom to purchase property”. “With few buyers and many sellers, prices stagnate then rapidly fall as assets are unloaded en masse onto the market. With demand falling in the housing sector, coupled to an inevitable increase in unemployment, a vicious deflationary spiral occurs. Economy activity grinds to a halt.” Soos says other arguments put forward by housing bubble deniers don’t stack up including the argument that “restrictive government regulations (RGR) limit the supply of land and timely dwelling construction through zoning controls, development, planning and building laws, driving up housing prices”.

Soos says the major difficulty with this argument is that government regulations can only affect rent prices and thus the market-efficient price for land. “If rent and land prices diverge, however, this argument falls flat – as is the present case. Housing prices have experienced a far greater run-up than rents since 1996. Further, markets would have already priced the supply-side distortions into the cost of housing long before the bubble began. There is no change in RGR that could explain the increase in housing prices from 1996, skyrocketing in 2001,” he says.

He also says low inflation and low interest rates that began in the late 1990s cannot fully explain the jump in house prices. “Even as far back as 2004, the RBA noted that the decrease in inflation and interest rates could only explain a doubling of household debt relative to incomes, and probably less. Household debt has more than quadrupled over this period,” he says. “If this argument were credible, the 1960s should have prompted an even greater household debt ratio as rates were the lowest on record throughout this decade. This did not occur.”